US banks that saved First Republic to set aside reserves in case of potential losses
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The US banks that contributed the $30 billion worth of deposits for First Republic Bank are planning to shore up an additional $100 million each during the earnings results for the first quarter to cover any potential losses.
US banks to set aside $100M each in Q1 earnings
Some of the largest banks on Wall Street set up funds to secure the uninsured deposits at the First Republic Bank. The First Republic Bank was among the financial institutions significantly affected by the collapse of Silicon Valley Bank and Signature Bank, with the shares plunging by more than 90%.
Top US banks joined forces to prevent First Republic Bank from going under and triggering another banking crisis in the US. These banks include Bank of America, Wells Fargo & Co, Citigroup, and JPMorgan Chase. Each of these banks deposited $5 billion in uninsured deposits to First Republic in March to boost confidence in the banking industry.
The situation with SVB and Signature Bank has since cooled down, with the deposit outflows triggered by a lack of confidence in the industry also slowing down. Usually, bank lenders set aside rainy day funds to continue normal operations even when customers fail to settle their loan obligations.
While confidence in the US banking sector appears to have been restored after regulators and financial institutions stepped in to prevent the situation from escalating, the top four US lenders are choosing to remain proactive in case a similar situation happens.
Warren Buffet has confidence in the US banking industry
The Chairman of Berkshire Hathaway, Warren Buffet, has expressed his confidence in the US banking industry. The billionaire chairman said that people should not panic about the banking industry or the safety of US bank deposits after the second-largest bank failure in US history since 2008.
Buffet noted that there was a possibility that more banks would go under. However, he added that the current issues seen in the banking industry were not the same as during the 2008 financial crisis.
“People shouldn’t be worried about losing money, and their deposits they have in an American bank, but the message has gotten very confused,” Buffet said
The billionaire also appears to attribute the collapse of SVB and Signature Bank to poor decisions by managers. He noted that the failure of the two banks should not create mass panic in the United States.
Buffet’s firm, Berkshire Hathaway, has an equity portfolio with multiple banks. The portfolio comprises a $34.2 billion year-end stake in Bank of America. The firm also owns multiple businesses, such as Geico Insurance and BNSF railroad.
US regulators bailed out SVB depositors. The bank had a significantly high volume of uninsured deposits. Its collapse happened after a poor interest rate strategy caused a huge gap in investment losses and a decline in capital. The bank’s poor financial outlook triggered a bank run. SVB has since filed for bankruptcy.
